Red Lobster Sale & Olive Garden 2014: Darden Restaurant Shares Slip; Operating Costs on the Rise
Darden Restaurants shares are sinking, and the latest earnings results show that Red Lobster is one reason that profits are down.
Olive Garden is also struggling. It saw sales drop and operating costs rise, according to Forbes. Darden said its fourth quarter revenue was $2.32 billion, which was slightly higher than the $2.3 billion reported a year earlier for the same quarter.
But the profit did take a hit when compared to the prior-year quarter. Profits were down 35 percent. This year's net income was $86.5 million, as opposed to $133.2 from the same time last year. Share earnings were down to 65 cents, where in the prior-year quarter they were $1.01.
But it was not all bad news for Darden Restaurants, who also runs LongHorn Steakhouse, Bahama Breeze, Capital Grille and Seasons.
LongHorn Steakhouse and the Specialty Restaurant group performed well.
LongHorn saw an increase of 2.4 percent in same-store sales. It also more than a 10 percent increase in revenue for the quarter. Bahama Breeze, Capital Grille and Yard House and other restaurants brought in a 15 percent bump in revenue.
It just was not enough to overcome how much Red Lobster has been struggling. Red Lobster saw a 5.6 percent decline in same-store sales. Olive Garden saw a 3.4 percent drop. And the Italian chain also saw a 2.7 percent decline in revenue. Darden said the reason was because of the higher cost of food and drink, as well as the labor and restaurant expenses.
David Palmer explained why Olive Garden struggling could be bad for Darden.
"Upon the completion of the sale of Red Lobster, nearly 60% of Darden's revenues will come from Olive Garden," he said. "And given our forecast for another quarter of underperformance, we are not convinced that an Olive Garden turn is on the horizon. One of the key debates remains whether Darden is justified in maintaining ownership of Olive Garden."
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